Understanding Financial Administration: Accounting Principles, Standards, And GST Regulations

Double-Entry Bookkeeping Principles

Accounting principle Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Describe and state when used
Double – entry bookkeeping principles	Double entry of bookkeeping accounting system states that each transaction from business will engage 2 or more accounts. It also allows to establish the accounting equation that is Assets = Liabilities + Equities. Except some small entities standard method of recording the transactions is through double entry. Whenever there is a debit entry there shall be an adjusting credit entry for the same amount.
General journal and general ledger entries Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	General journal is referred as books of the original entry. In the journal the accounting entries are listed in accordance with the dates. General ledger entries are the set of numbered accounts used by the businesses for tracking the financial transactions and preparing the financial reports. General journal is used when the entity uses the double entry book keeping system through debit and credit to maintain the accounting equation. On the other hand, the general ledger entries are passed by the businesses that employ double entry book keeping system that is each of the financial transactions have impact on 2 general ledger accounts and each entry has debit as well as credit transaction (Easton and Sommers 2018).
Key provisions of relevant accounting and auditing standards	Auditing and accounting practices are regulated with worldwide standards. Requirement of developing the auditing and accounting practices created from birth of the joint stock companies during the year 1844 that was accompanied with the segregation of ownership and control. The segregation required that the management shall report to owners regarding fairness of stewardship and resources assigned to them on the periodic basis. Accounting standards are considered as major regulatory mechanisms while preparing general purpose financial statements. It is concerned about the measurement scheme and the disclosure principles. On the other hand, auditing standards are necessary for subsequent auditing of the financial statements. It is used for providing the users of financial statements with the auditor opinion regarding whether the financial statements are presented in fair and material aspect (Lane and Farleigh 2017).
Goods and services tax (GST) regulation	GST is 10% fee added by Australian government to all the services and goods those are imported to Australia. All the Australian businesses having turnover of $ 75,000 per annum ($ 150,000 for the non-profit entities) shall register themselves for GST. For registering under GST, the business house must have ABN (Australian business number).

Date	Particulars	Folio	Debit	Credit
June 1	Colin a/c Capital		$ 200,000	$ 200,000
June 2	Inventory a/c Input GST Accounts payable		$ 6,000 $ 600	$ 6,600
June 15	Rent expenses Input GST bank a/c		$ 1,500 $ 150	$ 1,650
June 28	Insurance expenses Input GST Bank a/c		$ 300 $ 30	$ 330
June 30	Motor vehicle Input GST Bank a/c		$ 22,000 $ 2,200	$ 24,200
June 30	Cash a/c Sales a/c Output GST		$ 55,000	$ 50,000 $ 5,000

Bank account

Date	Particulars	Folio	Debit	Credit	Balance
June 15	Rent expenses with GST			$ 1,650
June 28	Insurance expense with GST			$ 330
June 30	Motor vehicle purchase with GST			$ 24,000	$ 26,180 (Credit)

Capital a/c

Date	Particulars	Folio	Debit	Credit	Balance
June 1	Colin a/c			$ 200,000	$ 200,000 (Credit)

Inventory a/c

Date	Particulars	Folio	Debit	Credit	Balance
June 2	Accounts payable		$ 6,000		$6,000 (Debit)

GST paid and collected

Date	Particulars	Folio	Debit	Credit	Balance
June 2	Accounts payable		$ 600
June 28	Bank a/c		$ 2,380
June 30	Cash a/c			$ 5,000	$ 2,020 (Credit)

Rent a/c

Date	Particulars	Folio	Debit	Credit	Balance
June 15	Bank a/c		$ 1,500		$ 1,500 (Debit)

Accounts payable

Date	Particulars	Folio	Debit	Credit	Balance
June 2	Inventory			$ 6,000	$ 6,000 (credit)

Motor vehicle

Date	Particulars	Folio	Debit	Credit	Balance
June 30	Bank a/c		$ 22,000		$22,000 (Debit)

Insurance

Date	Particulars	Folio	Debit	Credit	Balance
June 28	Bank a/c		$ 300		$ 300 (Debit)

Sales>

Date	Particulars	Folio	Debit	Credit	Balance
June 2	Cash a/c			$ 50,000	$ 50,000 (credit)

Trial balance as at 30^th June (Extract)

Account name	Debit	Credit
Bank account		$ 26,180
Capital a/c		$ 200,000
Inventory	$ 6,000
GST		$ 2,020
Rent	$ 1,500
Accounts payable		$ 6,000
Motor vehicle	$ 22,000
Insurance	$ 300
Sales		$ 50,000

Accounting principle	Describe and state when used
Balance sheet function and purpose	Main function of the balance sheet is informing the investors, company owners and the creditors regarding the liabilities, assets and shareholder’s equity at specific point of the time. Purpose of the balance sheet is revealing the financial status of the business at particular point of time. It reveals what is owned by the company in terms of assets, what is owed in terms of liabilities and the amount invested as equities (Robinson et al. 2015)
Revenue statements	Revenue statement is one of the three major financial statements used to report the financial performance of the company over the particular accounting period. Revenue statement is mainly focussed on the expenses and revenues of the company during specific period of time (Henderson et al. 2015)
Ø Cost of goods sold Ø Gross profit Ø Operating net profit Ø Unclassified adjusted expenses and revenues	Ø Cost of sales is direct cost that is attributable to goods production or service supply. It measures the cost incurred for producing the goods or the services provided under a particular period of time. Ø Gross profit is the amount of profit generated by the entity after deducting all the costs associated with the producing and selling the products or the costs incurred for delivering the services. It is appeared in the income statement of the company and the formula used is gross profit = revenues – cost of sales. Ø Operating profit is the residual income left with the company after paying all the costs required for operating the businesses. Along with COGS it includes the fixed expenses like rent, rates, insurance and variable costs like freight, shipping charges, utilities and payroll (Wang 2014). Ø Unclassified adjusted expenses and revenues are recorded in the income statement; however, they are not classified into any classes. Total amount of the revenue or expenses do not change irrespective of the fact that the accounts are classified or unclassified.

Recording of assets –

• Purchased computer on 1/7/2016 for $ 14,000 with nil residual value and additional $ 1,000 for software installation. Method of depreciation is straight line and estimated useful life is 5 years.

Depreciation = ($ 14,000+$1000 – 0)/5 = $ 3000 per year

• Purchased computer on 1/9/2016 for $ 9,000 with nil residual value and additional $ 3,000 for installation. Method of depreciation is straight line and estimated useful life is 4 years.

Depreciation = ($ 9,000+$3000 – 0)/4 = $ 3,000 per year

• Purchased motor vehicle on 1/8/2016 for $ 18,000 with nil residual value and additional $ 2,000 for music system. Method of depreciation is straight line and estimated useful life is 5 years.

Depreciation = ($ 18,000+$2,000 – 0)/5 = $ 4,000 per year

Date	Particular	Folio	Debit	Credit
Purchase
01/07/2016	Computer Software installation Bank (Purchased computer through bank)	160 215 220	14000 1000	15,000
01/09/2016	Office furniture Installation Bank ( Purchased Machinery)	150 215 100	9000 3000	12,000
01/11/2016	Motor vehicle Music system Cash ( Purchased computer)	166 215 100	18,000 2,000	20,000
Depreciation
30/06/2017	Depreciation expense Accumulated depreciation- computer (Depreciation calculated as 20% p.a)		3,000	3,000
30/06/2017	Depreciation expense Accumulated depreciation-Office furniture (Depreciation calculated as 25% p.a)		3,000	3,000
30/06/2017	Depreciation expense Accumulated depreciation-Motor vehicle (Depreciation calculated as 20% p.a)		4,000	4,000

ASSET REGISTER CARD
Description: Computer	Estimated Residual: 0
Asset ID : Comp001	Depreciation Method : Straight line Method
Location :Admin Office	Depreciation Rate: 20%
Supplier: ABC Company	Estimated Useful Life: 5 Years
Date	Details	Original capital cost	Additional cost	Total capital cost	Depreciation	Written down value
Annual	Accumulated
1/7/2016	Computer purchased	14,000	1,000	15,000			15,000
30/6/2017					3,000	3000	12000
30/06/2018					3,000	6,000	9,000
30/6/2019					3,000	9,000	6,000

ASSET REGISTER CARD
Description: Office furniture	Estimated Residual: 0
Asset ID : Furn005	Depreciation Method : Straight line Method
Location :Admin Office	Depreciation Rate: 25%
Supplier: ABC Company	Estimated Useful Life: 4 Years
Date	Details	Original capital cost	Additional cost	Total capital cost	Depreciation	Written down value
Annual	Accumulated
1/9/2016	Office furniture	9,000	3000	12,000			12,000
30/6/2017					3,000	3000	9,000
30/06/2018					3,000	6,000	6,000

ASSET REGISTER CARD
Description: Motor vehicle	Estimated Residual: 1000
Asset ID : Motr003	Depreciation Method : Straight line Method
Location :Admin Office	Depreciation Rate: 20%
Supplier: ABC Company	Estimated Useful Life: 5 Years
Date	Details	Original capital cost	Additional cost	Total capital cost	Depreciation	Written down value
Annual	Accumulated
1/8/2016	Office furniture	18,000	2,000	20,000			20,000
30/6/2017					4,000	4000	16,000
30/06/2018					4,000	8,000	12,000
30/06/2019					4,000	12,000	8,000
Additional expenses
Date	Service Provider	Details of work Provided	cost
1/07/2016	Selling company	Software installation	1000
01/9/2016	selling company	Computer services	3000
01/08/2016	Selling company	Music system	2000

Profit or loss on disposal –

Item	Carrying value	Selling price	Profit /( Loss)
Computer	6,150	2000	(4,150)
Office furniture	6,000	7,000	1,000
Motor vehicle	8,000	10,000	2,000
Total profit/(loss)			(1,150)

4.3 project work activity

Answer 1

Register for PPE is the register that lists all the fixed assets owned by business and includes details like the type of asset, location of the asset, date and purchase price and useful life of asset. Fixed asset register includes the following items –

• Serial number that shows the entries count
• Identification
• Description of the asset
• Name of the asset
• Date of purchase
• Purchase costs
• Date on which the asset is put to use
• Method of depreciation
• Rate of depreciation
• Amount of the depreciation
• Asset’s gross book value
• Asset’s net book value
• Salvage value expected from the asset

Depreciation is allocation of asset’s cost over the useful life of the asset on systematic basis. On the basis of generally accepted accounting principles the method of depreciation is determined. Various factors considered while determining the appropriate method of depreciation are as follows –

• If it is considered that the equal amount of the asset will be used in each period on continuous basis throughout the useful life of the asset straight line method will be most appropriate. Assets for which this method is used are office furniture and building.
• If the measurable units are produces by the asset, units-of-production method is used. It allocates the depreciation on per unit basis in each period (Frias?Aceituno, Rodríguez?Ariza and Garcia?Sánchez 2014).  
• If the asset is used more in early years of the asset’s life as compared to the later years of the asset’s life declining balance method will be appropriate.

Fixed asset register is maintained on a book or on excel spreadsheet that includes the below mentioned details –

• Identification and serial number
• Name of the asset
• Date of purchase
• Purchase costs
• Method of depreciation
• Rate of depreciation
• Amount of the depreciation and accumulated depreciation
• Asset’s net book value

At end of each month accountant shall prepare the depreciation schedule for each line item using the rate of depreciation and describing in the sub-section.

There are 2 ways of computing the depreciation on the assets – diminishing balance method and straight line method. Hence, the entities are required to determine the appropriate method that will be suitable for them. Eventually, they are required to record the depreciation in the journal entry.

Prepaid expenses are the future expenses payment for which has been made in advance. In other words, the prepaid expenses are for which costs have been paid but the services has not been availed yet. Prepaid expenses are reported in the balance sheet of the company under current assets. On the other hand, accrual expenses and revenues are that which have already been availed or consumed however, the related payment has not yet been made. Accruals are reported in the balance sheet of the company as liability (Trotman and Carson 2018).

Bad debts are those debts that are not expected to be recovered. Bad debt expenses are recorded in the income statement as expense. Bad debts can be recorded in 2 ways – allowance method or direct write off method. Under direct write off method when it is probable that invoice from specific customer will not be paid invoice amount is recorded to the bad debt expenses directly. It is debit to the bad debt expenses and credit to the receivable account. on the other hand, as per allowance method while the sales transaction is recorded an associated amount for bad debt expense is recorded. It is recorded as debit to bad debt expense account and credit to allowance for the doubtful accounts (Zeff, van der Wel and Camfferman 2016).

1^st journal entry is recorded for clearing the opening balance of inventories through debiting the income summary and crediting the inventories for an equal amount of opening balance of inventories. 2^nd adjusting journal entry is recorded through debiting the inventories and crediting the income summary for the inventory values at the closing of the accounting period (Macve 2015).  

Main purposes of the adjusting entries are adjusting the expenses and revenues to accounting period to which it pertains. After making the entries in accounting journals they are posted or recorded in the general ledger in same way as other journal entries are recorded.

Every time a transaction takes place shall be recorded. After recording the transactions in journal, they are transferred to general ledger. Each transaction from the journal entry shall be posted to ledger. Ledger is the final entry book and is used for classifying and organizing the transactions. Each of the journal entry is transferred to individual account. These line items are known as ledger accounts (Cao, Chychyla and Stewart 2015).

Final ledger accounts are prepared for reflecting the gross as well as net profits to evaluate the way in which the entity has performed during particular time period. This evaluation can be used for making future decisions.

Revenue statements are prepared for evaluating the entity’s past performance that provides the basis for predicting future performance. It is prepared by taking into consideration all the revenues and deducting the expenses from that (Minnis and Sutherland 2017).

Balance sheet is prepared for revealing the performance of the company. It is regarded as the documented proof regarding the assets and liabilities of the company and the claims of residual ownership against the equity at particular point of time. Balance sheet gives clear idea regarding the assets of the company and liability claims against it. It is prepared through showing the assets that is segregated into current assets and non-current assets, liabilities that is segregated into current liabilities and non-current liabilities and owner’s equity (Kwok 2017).

Reference 

Cao, M., Chychyla, R. and Stewart, T., 2015. Big Data analytics in financial statement audits. Accounting Horizons, 29(2), pp.423-429.

Easton, M. and Sommers, Z., 2018. Financial Statement Analysis & Valuation, 5e.

Frias?Aceituno, J.V., Rodríguez?Ariza, L. and Garcia?Sánchez, I.M., 2014. Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), pp.56-72.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Kwok, B.K., 2017. Accounting irregularities in financial statements: A definitive guide for litigators, auditors and fraud investigators. Routledge.

Lane, C. and Farleigh, W., 2017. Annual Report and financial statements.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans. Journal of Accounting Research, 55(1), pp.197-233.

Robinson, T.R., Henry, E., Pirie, W.L., Broihahn, M.A. and Cope, A.T., 2015. International Financial Statement Analysis, (CFA Institute Investment Series). John Wiley & Sons.

Trotman, K. and Carson, E., 2018. Financial accounting: an integrated approach. Cengage AU.

Wang, C., 2014. Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), pp.955-992.

Zeff, S.A., van der Wel, F. and Camfferman, C., 2016. Company financial reporting: A historical and comparative study of the Dutch regulatory process. Routledge.